Coverage of financing deficit in firms in financial distress under the pecking order theory

Simple item page
dc.contributor.authorSanfilippo-Azofra, Sergio
dc.contributor.authorLópez-Gutiérrez, Carlos
dc.contributor.authorTorre-Olmo, Begoña
dc.contributor.otherEkonomická fakultacs
dc.date.accessioned2016-12-05
dc.date.available2016-12-05
dc.date.issued2016-12-05
dc.description.abstractThe financing decisions adopted by firms in financial distress are very important because most of the strategy decisions such as investments, market entry, or product diversification are considerably affected by the financial constraints faced by them. However, these decisions are still not well known and empirical evidence about firms in financial distress is controversial. Previous studies do not find support for either the trade-off theory or the pecking order theory, which explain the financial decisions of healthy firms. Distressed firms frequently have to use all of their available financial resources to cover their financing deficit. This could give rise to a concave quadratic relationship between financing deficit and net debt issued, which might well explain the ambivalent results about the financial decisions of these firms. To analyze this quadratic relationship, which has not been studied previously, we perform an empirical analysis on a sample of 3,337 listed firms from Germany, Canada, the United States, France, Italy and the United Kingdom. Our results show that the pecking order theory does not appear to have a higher explanatory power in healthy firms. Moreover, the hierarchy suggested by the pecking order theory is not totally applicable in firms in financial distress. Our results show that as financing deficit grows, these firms use debt decreasingly, which gives rise to a concave quadratic relationship between financing deficit and net debt issued. This suggests that firms in financial distress have difficulty issuing new debt. Our results also show that firms in financial distress have a greater probability of issuing equity. Therefore, these firms can use equity financing as an alternative to debt issuance.en
dc.format.extent104-116 s.cs
dc.identifier.doi10.15240/tul/001/2016-4-008
dc.identifier.eissn2336-5604
dc.identifier.issn1212-3609
dc.identifier.urihttps://dspace.tul.cz/handle/15240/19272
dc.language.isoen
dc.publisherTechnická Univerzita v Libercics
dc.publisherTechnical university of Liberec, Czech Republicen
dc.publisher.abbreviationTUL
dc.relation.isbasedonAgca, S., & Mozumdar, A. (2004). Firm size, debt capacity, and the pecking order of financing choices (George Washington University Working paper). Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=687369.
dc.relation.isbasedonAltman, E. I. (1968). Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy. The Journal of Finance, 23(4), 589-609. doi:10.1111/j.1540-6261.1968.tb00843.x.
dc.relation.isbasedonAsquith, P., Gertner, R., & Scharfstein, D. (1994). Anatomy of financial distress: An examination of junk-bond issuers. The Quarterly Journal of Economics, 109(3), 625-658. doi:10.2307/2118416.
dc.relation.isbasedonBarclay, M. J., & Smith, C. W. (2005). The Capital Structure Puzzle: The Evidence Revisited. Journal of Applied Corporate Finance, 17(1), 8-17. doi:10.1111/j.1745-6622.2005.012_2.x.
dc.relation.isbasedonBhagat, S., Moyen, N., & Suh, I. (2005). Investment and internal funds of distressed firms. Journal of Corporate Finance, 11(3), 449-472. doi:10.1016/j.jcorpfin.2004.09.002.
dc.relation.isbasedonBowe, M., Filatotchev, I., & Marshall, A. (2010). Integrating contemporary finance and international business research. International Business Review, 19(5), 435-445. doi:10.1016/j.ibusrev.2010.01.005.
dc.relation.isbasedonChirinko, R. S., & Singha, A. R. (2000). Testing static tradeoff against pecking order models of capital structure: a critical comment. Journal of Financial Economics, 58(3), 417-425. doi:10.1016/S0304-405X(00)00078-7.
dc.relation.isbasedonChou, H., Li, H., & Yin, X. (2010). The effects of financial distress and capital structure on the work effort of outside directors. Journal of Empirical Finance, 17(3), 300-312. doi:10.1016/j.jempfin.2009.12.005.
dc.relation.isbasedonCotei, C., Farhat, J., & Abugri, B. A. (2011). Testing trade-off and pecking order models of capital structure: does legal system matter. Managerial Finance, 37(8), 715-735. doi:10.1108/03074351111146193.
dc.relation.isbasedonDavydenko, S. A., & Franks, J. R. (2008). Do bankruptcy codes matter? A study of defaults in France, Germany, and the UK. The Journal of Finance, 63(2), 565-608. doi:10.1111/j.1540-6261.2008.01325.x.
dc.relation.isbasedonDe Haan, L., & Hinloopen, J. (2003). Preference hierarchies for internal finance, bank loans, bond, and share issues: Evidence for Dutch firms. Journal of Empirical Finance, 10(5), 661-681. doi:10.1016/S0927-5398(03)00010-0.
dc.relation.isbasedonDe Jong, A., & Veld, C. (2001). An empirical analysis of incremental capital structure decisions under managerial entrenchment. Journal of Banking and Finance, 25(10), 1857-1895. doi:10.1016/S0378-4266(00)00163-1.
dc.relation.isbasedonDichev, I. D. (1998). Is the risk of bankruptcy a systematic risk? The Journal of Finance, 53(3), 1131-1147. doi:10.1111/0022-1082.00046.
dc.relation.isbasedonFama, E. F., & French, K. R. (2002). Testing trade-off and pecking order predictions about dividends and debt. The Review of Financial Studies, 15(1), 1-33. doi:10.1093/rfs/15.1.1.
dc.relation.isbasedonFlannery, M. J., & Rangan, K. P. (2006). Partial adjustment toward target capital structures. Journal of Financial Economics, 79(3), 469-506. doi:10.1016/j.jfineco.2005.03.004.
dc.relation.isbasedonFrank, M. Z., & Goyal, V. K. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67(2), 217-248. doi:10.1016/S0304-405X(02)00252-0.
dc.relation.isbasedonFrank, M. Z., & Goyal, V. K. (2009). Capital structure decisions: Which factors are reliably important? Financial Management, 38(1), 1-37. doi:10.1111/j.1755-053X.2009.01026.x.
dc.relation.isbasedonGeorge, T., & Hwang, C. (2010). A resolution of the distress risk and leverage puzzles in the cross section of stock returns. Journal of Financial Economics, 96(1), 56-79. doi:10.1016/j.jfineco.2009.11.003.
dc.relation.isbasedonGilson, S. C. (1997). Transactions costs and capital structure choice: Evidence from financially distressed firms. The Journal of Finance, 52(1), 161-196. doi:10.1111/j.1540-6261.1997.tb03812.x.
dc.relation.isbasedonGonzález, V. M., & González, F. (2012). Firm size and capital structure: evidence using dynamic panel data. Applied Economics, 44(36), 4745-4754. doi:10.1080/00036846.2011.595690.
dc.relation.isbasedonGriffin, J. M., & Lemmon, M. L. (2002). Book-to-market equity, distress risk, and stock returns. The Journal of Finance, 57(5), 2317-2336. doi:10.1111/1540-6261.00497.
dc.relation.isbasedonHovakimian, A., Opler, T., & Titman, S. (2001). The debt-equity choice. Journal of Financial and Quantitative Analysis, 36(1), 1-24. doi:10.2307/2676195.
dc.relation.isbasedonLa Roccaa, M., La Roccaa, T., Geraceb, D., & Smark, C. (2009). Effect of diversification on capital structure. Accounting and Finance, 49(4), 799-826. doi:10.1111/j.1467-629X.2009.00304.x.
dc.relation.isbasedonLeary, M., & Roberts, M. (2005). Do firms rebalance their capital structure? Journal of Finance, 60(6), 2575-2619. doi:j.1540-6261.2005.00811.x.
dc.relation.isbasedonLeary, M., & Roberts, M. (2010). The pecking order, debt capacity, and information asymmetry. Journal of Financial Economics, 95(3), 332-355. doi:10.1016/j.jfineco.2009.10.009.
dc.relation.isbasedonLemmon, M., & Zender, J. (2010). Debt Capacity and Tests of Capital Structure Theories. Journal of Financial and Quantitative Analysis, 45(5), 1161-1187. doi:10.1017/S0022109010000499.
dc.relation.isbasedonLiang, H., & Bathala, C. (2009). Tradeoff or Pecking Order: Capital Structure Policy Suitable for Financially Distressed Firms. IUP Journal of Applied Finance, 15(10), 5-30.
dc.relation.isbasedonLópez, C., Torre, B., & Sanfilippo, S. (2012). Firms’ performance under different bankruptcy systems: A Europe-USA empirical analysis. Accounting and Finance, 52(3), 849-872. doi:10.1111/j.1467-629X.2011.00407.x.
dc.relation.isbasedonMackay, P., & Gordon, M. P. (2005). How Does Industry Affect Firm Financial Structure? The Review of Financial Studies, 18(4), 1433-1466. doi:10.1093/rfs/hhi032.
dc.relation.isbasedonMuradoğlu, Y. G., & Sivaprasad, S. (2012). Capital structure and abnormal returns. International Business Review, 21(3), 1-37. doi:10.1016/j.ibusrev.2011.03.007.
dc.relation.isbasedonMyers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221. doi:10.1016/0304-405X(84)90023-0.
dc.relation.isbasedonOhlson, J. A. (1980). Financial Ratios and the Probabilistic Prediction of Bankruptcy. Journal of Accounting Research, 18(1), 109-131. doi:10.2307/2490395.
dc.relation.isbasedonPindado, J., & De La Torre, C. (2008). Financial decisions as determinants of ownership structure: Evidence from Spanish family controlled firms. Managerial Finance, 34(12), 868-885. doi:10.1108/03074350810915824.
dc.relation.isbasedonPindado, J., Rodrigues, L., & De La Torre, C. (2006). How does Financial Distress Affect Small Firms' Financial Structure? Small Business Economics, 26(4), 377-391. doi:10.1007/s11187-005-4845-8.
dc.relation.isbasedonQian, J., & Strahan, P. E. (2007). How laws and institutions shape financial contracts: The case of bank loans. The Journal of Finance, 62(6), 2803-2834. doi:10.1111/j.1540-6261.2007.01293.x.
dc.relation.isbasedonSelvarajah, E., & Ursel, N. (2012). Mergers and corporate debt financing. Economics Letters, 114(3), 296-298. doi:10.1016/j.econlet.2011.11.003.
dc.relation.isbasedonShyam-Sunder, L., & Myers, S. C. (1999). Testing static tradeoff against pecking order models of capital structure. Journal of Financial Economics, 51(2), 219-244. doi:10.1016/S0304-405X(98)00051-8.
dc.relation.isbasedonVanacker, T., & Manigart, S. (2010). Pecking order and debt capacity considerations for high-growth companies seeking financing. Small Business Economics, 35(1), 53-69. doi:10.1007/s11187-008-9150-x.
dc.relation.isbasedonWilliams, R. (2009). Using heterogeneous choice models to compare logit and probit coefficients across groups. Sociological Methods and Research, 37(4), 531-559. doi:10.1177/0049124109335735.
dc.relation.isbasedonYatchew, A., & Griliches, Z. (1985). Specification Error in Probit Models. The Review of Economics and Statistics, 67(1), 134-139. doi:10.2307/1928444.
dc.relation.ispartofEkonomie a Managementcs
dc.relation.ispartofEconomics and Managementen
dc.relation.isrefereedtrue
dc.rightsCC BY-NC
dc.subjectcapital structureen
dc.subjectfinancial distressen
dc.subjectpecking orderen
dc.subject.classificationG32
dc.subject.classificationG33
dc.titleCoverage of financing deficit in firms in financial distress under the pecking order theoryen
dc.typeArticleen
local.accessopen
local.citation.epage116
local.citation.spage104
local.facultyFaculty of Economics
local.fulltextyes
local.relation.abbreviationE&Men
local.relation.abbreviationE+Mcs
local.relation.issue4
local.relation.volume19
Files
Original bundle
Now showing 1 - 1 of 1
Thumbnail Image
Name:
EM_4_2016_8.pdf
Size:
1017.71 KB
Format:
Adobe Portable Document Format
Description:
článek
Download
Collections
Číslo 4